HR1667: Financial Institution Bankruptcy Act of 2017

Seal of the U.S. Bankruptcy Court for the Eastern District of California.

This bill amends federal bankruptcy law to allow certain large financial institutions to elect a new “Subchapter V” bankruptcy process specific to such institutions. Under the new process, a debtor institution may request the bankruptcy court to order the transfer of the debtor’s assets to a newly formed bridge company.

Official Summary

Financial Institution Bankruptcy Act of 2017

This bill amends federal bankruptcy law to allow certain large financial institutions to elect a new “Subchapter V” bankruptcy process specific to such institutions.

Under the new process, a debtor institution may request the bankruptcy court to order the transfer of the debtor’s assets to a newly formed bridge company. The trust agreement governing such an assets transfer must meet specified requirements.

The court may order such an assets transfer only if it determines, by a preponderance of the evidence, that: (1) the transfer is necessary to prevent serious adverse effects on financial stability in the United States, (2) other specified requirements are met.

The bill imposes a temporary stay on actions to terminate or modify contracts with institutions that enter the Subchapter V bankruptcy process.

Members of the institution’s board of directors shall have no liability to shareholders or creditors for a good faith filing of a petition to commence a Subchapter V bankruptcy case.

The bill specifies timelines with respect to the commencement of a case and the transfer of assets.

The Securities and Exchange Commission and the Federal Deposit Insurance Corporation, among other federal regulatory agencies, shall have standing in a Subchapter V bankruptcy case.

Under specified conditions, a Subchapter V bankruptcy case may be converted into a case in Chapter 7 bankruptcy (also known as “liquidation” bankruptcy).

The bill amends the federal judicial code to require the Chief Justice of the United States to designate at least 10 bankruptcy judges to be available to hear Subchapter V bankruptcy cases.